Macau: Weak June Start, 2Q Profit Could Fall; Deutsche Lowers TP

By

Shuli Ren

June 9, 2014 9:05 a.m. ET

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Macau had a weak start this month. Through June 8, weekly average daily run-rate was only 1.025 billion Macau pataca ($133 million), 6% below the weekly average this year, despite encompassing two weekends, reported Wells Fargo analyst Cameron McKnight. The rest of June is expected to trend lower, as the World Cup kicks off this Friday and avid Chinese soccer fans stay home to watch the sports.

Macau casinos have a strong earnings record. But this quarter may be different. We may see a quarterly decline in EBITDA this quarter, the first since fourth quarter 2009, warns Morgan Stanley in a research note published today. Here are analysts Praveen K Choudhary, Alex Poon and Thomas Allen:

We expect June VIP revenue to decline by 7% YoY due to fewer weekend days and potential distraction from the World Cup starting June 12th. We expect EBITDA to decline by 4% QoQ, although it will still be up 21% YOY.

3Q14 could see some impact from elimination of illegal mobile devices providing cash to premium mass customers starting July 1st. 4Q14 could also be under pressure due to high base and smoking ban (effective October 6) that could potentially force customers to move from premium mass to VIP.

The weaker-than-expected May gross gaming revenue is likely because junket tightened liquidity, according to Deutsche analyst Karen Tang:

The sharp fall in GGR run-rate happened during the last 6 days in May (May 26-31) when GGR only averaged MOP780m/day, almost 30% below the April and early May daily run-rate (MOP1.1bn/day). The "month-end crunch" is often a signal of tight junket liquidity. As junkets need to settle their credit with casino operators at the end of every month, small and mid-sized junkets with tight balance sheets may need to reduce lending to VIP players at the end of the month.

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